US consumer watchdog finalizes new mortgage rules

FILE PHOTO: Tenants and housing rights activists protest stopping rent payments and mortgage debt as sheriff’s deputies block entrance to courthouse amid disease outbreak in coronavirus (COVID-19), in Los Angeles, California, United States, October 1, 2020. REUTERS / Lucy Nicholson

WASHINGTON (Reuters) – The U.S. consumer watchdog on Thursday finalized two rules easing mortgage requirements on a borrower’s ability to repay, in a bid to expand the range of products available to low-cost customers. income and more risky.

The Consumer Financial Protection Bureau (CFPB) changes are part of a larger initiative by President Trump’s administration to boost affordable mortgage products by reducing lender liability and compliance risk, although some consumer advocates say that the changes could harm vulnerable borrowers.

One measure expands the definition of a “qualifying mortgage,” a category of low-risk mortgage loan, by replacing the existing limit of 43% of the debt-to-income ratio with a limit based on price. It also gives lenders more leeway to make “reasonable determinations” of a borrower’s probability of repayment.

The agency also created a new “seasoned” mortgage that would provide lenders with certain liability protections after holding the loans in a portfolio for at least three years. Under the new category proposed in August, a senior fixed rate “seasoned” loan can become a qualifying general mortgage after 36 months of on-time borrower payments.

“The Bureau’s main objective with this final rule is to ensure access to responsible and affordable mortgage credit,” CFPB director Kathy Kraninger said in a statement.

While mortgage groups have praised the Bureau’s efforts to promote more innovative products, some consumer advocates have said the changes remove important safeguards and make it easier for banks to target vulnerable borrowers.

The changes precede the Jan. 10 expiration of a federal exemption that makes subprime mortgages eligible for purchase by government-run entities Fannie Mae and Freddie Mac.

The CFPB said ending this exemption and redefining repayment capacity would increase mortgage competition.

Reporting by Katanga Johnson; Editing by Michelle Price and Aurora Ellis

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